How will Brexit affect litigation in the English courts?

Parties across the world regularly choose the English courts to resolve international disputes. English courts have a reputation for consistency, honesty, transparency and technical knowledge. English judges are seen as impartial and independent. There are no juries in civil cases, no awards of punitive or exemplary damages and there is a “loser pays” system. Although costs and fees have risen in recent years, against this background they still compare favourably with other jurisdictions and with arbitration.

England is a global financial centre and it is natural that litigation relating to complex financial transactions should find its home in England. The High Court in London has been one of the principal locations for large-scale financial litigation for many years and data made available for the year to March 2015 showed a further increase in litigation in the Commercial Court where 63% of litigants were foreign nationals.

These advantages are independent of the UK’s membership of the European Union and should continue after it leaves. However, Brexit is likely to have a number of short and long term effects on the amount of litigation and the sorts of disputes that are litigated in England.

In the short term, there will undoubtedly be disputes generated by Brexit. Sharp dislocations in asset prices and in the financial markets cause counterparties to look for ways to avoid their contractual obligations. The assumptions behind contracts forming part of a European supply chain may no longer hold, for instance, leading parties to look for contractual exits. Borrowers and lenders will be examining their material adverse change clauses and other events of default. In general, uncertainty and change tend to trigger disputes. These will work their way through the English courts over the next several years.

The long term effects are harder to judge. The Brussels Regulation and the Rome I and Rome II Regulations set out a European-wide regime for court jurisdiction and for choice of contractual and non-contractual governing law. In particular, jurisdiction within Europe is based on the principle that all European courts are competent to determine jurisdiction amongst themselves and so, with limited exceptions, a court in one European country will not attempt to prevent another court from determining questions of jurisdiction and will stay its own proceedings in favour of another European jurisdiction that is better placed to hear the dispute. If the UK were to leave the regime of the Brussels Regulation and not replace it with something similar, such as the Lugano Convention, then it would be treated by Member State courts as a country outside this framework. Irrespective of what rules the English courts decide to follow, it may be harder for parties to ensure that a case is heard in the UK and not a European Member State, even where there is an English exclusive jurisdiction clause. Enforcement of judgments and service of process in Europe may also become more complex.

However, the European jurisdiction framework has also restricted the freedom of manoeuvre of the English courts. Anti-suit injunctions are a favoured tool of the English courts that have been curtailed by European law – a Brexit could see a revival in their use. Also, arbitration falls outside the scope of the European regime and should be unaffected. Overall, it is difficult at this early stage to determine whether the benefits outweigh the costs, and there may well be little net effect: the international standing of the English courts is based on factors specific to the UK, as opposed to the connection with Europe.

Harder to appraise are the second-order effects. Brexit may lead to changes in the size and role of the City of London as an international financial centre and in the presence of international businesses in the UK. The international reputation of the English courts is built on the quality of the judiciary and the suitability of the law for commercial disputes, but changes to the City may still eventually affect litigation in the English courts. This will vary by industry, and we will continue to cover this aspect in our industry-by-industry analysis of the consequences of Brexit.

Brexit: planning for the future as negotiations continue

We have created this Brexit blog to provide up to date analysis and legal commentary as the new Brexit landscape evolves, addressing key questions and topics of interest to our clients across the different industry sectors in which they operate.